If you’re interested in stocks you’ve probably heard some chaos online related to Robinhood. Even If you’re not into stocks, there’s simply no way you missed all of the announcements all over the internet.
Let’s review what’s going on to make sure you’re properly informed of the events and lawsuits that have progressed from the claim. We’ll separate the truth from the conspiracies on the matter.
Foundations
Robinhood is a great investing app for beginners. Founded in 2013 and launched in 2015, the application allows traders to buy and sell stocks with ease. This application has since found itself very popular amongst the younger populations as they easily learn to build and grow their portfolios.
Background Story
On January 28, 2021, many people were very upset when they found out Robinhood had blocked purchases on many popular stocks, including GameStop and AMC. To understand why, it’s important to review the backstory.
You’d quickly learn that the source of all this chaos was a Reddit group (r/WallStreetBets) that had leveraged Robinhood and Reddit to encourage others to push up the price of GameStop stock. As a result, the stock rose very quickly, and many saw dramatic growth from their initial investments. However, this ultimately would result in a financial impact on all the short-selling hedge fund investors who bet against the success of the stock just recently.
Quickly, this Reddit group began to reach out to others and impact both AMC and BlackBerry as well. Both stocks quickly began to see forecasted growth.
In response to all of the sudden interest in these stocks, Robinhood took it upon themselves to block the purchase of these stocks. They also announced this news across Twitter where they stated, “In light of current market volatility, we are restricting transactions for certain securities to position closing only, including $AMC and $GME. Read more here.”
In the blog they linked in the post, Robinhood states that they were forced to restrict transactions for various securities to “position closing only” due to the volatility of the market. Of course, this blog raised many questions from users how this was permitted. Therefore, in a later blog posted on January 29, they detail the process of how their process work to help answer many of the questions that began to circle the topic.
Reactions
Given the reports, you would not be shocked to learn that Robinhood users were not very thrilled with the news. Many took to social media to express their feelings on the matter.
With more than 79K hearts, it’s clear that social media users were tuned in to the information and events around Robinhood’s actions.
Overall the consensus is clear: users believed Robinhood’s actions were an act of market manipulation. This term is defined as “artificially inflating or deflating the price of a security or otherwise influencing the behavior of the market for personal gain,” according to Investopedia.
Pushback and Lawsuits
With so many unhappy customers and such a huge accusation under their belt, it was only a matter of time before Robinhood was impacted by the consequences. These consequences quickly came in the form of lawsuits.
In New York, a class-action lawsuit was filed that stated the following: "Robinhood's actions were done purposefully and knowingly to manipulate the market for the benefit of people and financial institutions who were not Robinhood's customers.”
The same lawsuit also states, “On or about March 23, 2016, Robinhood’s official Twitter account stated: ‘Let the people trade.’ They have since disregarded their mantra and have blocked access for millions of its customers to trade particular securities.”
Similarly, another class-action lawsuit was filed by attorney Richard Gatz. This lawsuit claims that Robinhood halted trades of other stocks, including BlackBerry, AMC Theaters, and Nokia in an attempt to “protect institutional investment at the detriment of retail customers.”
Despite the lawsuits, sources say that Robinhood’s user agreement is likely to help protect them from any such lawsuits. According to Robinhood’s user agreement, they’re permitted to prohibit or restrict trades at any time and without prior notice.
Nonetheless, Reddit users have already taken action and formed the r/ClassActionRobinHood to ban together. This subreddit has already racked up about 40K users. The subreddit includes various comments and reports from users regarding various lawsuits and screenshots of error messages from their accounts.
Many have even used the subreddit to post gifs and memes to lighten up the conversation.
What’s next?
As this story continues to develop, it’s only a matter of time before we learn more about the various cases that are being developed against Robinhood. These cases may result in long-term impacts on the company’s brand and financial projections in the years to come.
We will keep you updated on the latest affairs, so stay tuned for more.
